SGB listing on ITP – BSE

Institutional Trading Platform: Best Investment Route for Investors in SGBs
Last week we attended a presentation by BSE on Institutional trading platform (ITP) for listing of
SGBs directly without an IPO. Such a platform would be a great help for SGBs
SGB in fund raising from
high networth individuals as well as institutional investors. The qualifying criteria
ria for the listing on an
institutional ITP are very easy and the process is pretty straight forward. We expect majority of
institutional investors to take ITP as an entry and exit route for tax efficiency.
We, at Varhad Capital, find the following advantages
of listing on the ITP:
1. Tax benefit: Just like any other listed company, the investors need to pay no tax on long
term capital gains compared to 10% without indexation benefit while half tax on short term
capital gains against 30% normal. The additional costs would be 0.1% for securities
transactions cost only. Hence it makes sense for PE/VC/HNI investors to enter and exit via
ITP route.
ust like other listed companies, the ITP listed companies can
2. Ease of future fund raising: Just
raise funds through swapping
swapping of shares, preferential issue, rights issue, QIB placements, etc.
3. Easier compliance: ITP listed company doesn’t have any limit on promoter holding in the
company. The ITP is lighter on documentation and compliance. Hence compliance cost may
remain lower and listing process would be much easier.
4. ESOPs and talent retention: Generally private companies offer employee stock options
(esops) to retain talented employees. These employees with ESOP find it difficult to sell such
shares after vesting them. Such investors can sell their holdings in tranches of INR1m or
more on the ITP. SGBs may find it better to create wealth for their employees through
5. Easier entry and exit: For private SGBs, investors may have to sell in a go as there is no
liquidity, but on ITP, the investor will be able to exit in tranches rather than sell in one go
through ITP. Thus individual investors may find some value in selling gradually as company
grows. Buying shares at different intervals also helps buyers in getting breathing space.
6. Better visibility: we expect ITP listed companies to get better visibility compared to private
companies. This may help PE/VC funds in valuation of their portfolio companies.
companies. BSE ITP has
assured to conduct a research on all ITP listed companies so that companies may attract
investors over three years post listing.
7. Attractive valuations: Private SGBs may not be able to attract investors in attractive sectors
where listed
d companies on BSE main board are commanding rich valuations.
valuations The ITP listed
© 2013 by The Varhad Group. All rights reserved. No part of this document may be reproduced or
transmitted in any form or by any
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stocks may get attractive valuations when large company stocks on main board are doing
Lower listing costs as little as INR1m for investment advisor for ITP listing is the biggest
for SGBs as well as PE/VC funds. Since the minimum transaction value is kept at INR1m, the liquidity
may not be great compared to SME Exchange. This has been done to keep retail investors away from
ITP so that cost of compliance and distribution
distribution of information can be kept to a minimum. All stocks
need to be kept in dematerialised form; hence some additional costs of depository
epository and registration
charges may be there.
We expect PE/VC funds to transact through ITP route to save on long term capital
capital gain (LTCG) and
hence the platform may become a hub for 2,000 investee companies of PE/VC funds. We strongly
feel that ITP is going to major source of SGB fund raising due to easy entry and exit while saving
taxes in the long term. BSE has an absolute advantage because it is way ahead in SME exchange due
to its strong connect with SGBs. BSE ITP may be able to attract at least 200 companies to be listed on
its ITP. We wish them all the best!
Our, DICCI SME Fund may make an entry as well as exit for all portfolio companies on account of
valuation transparency as well as tax benefit provided investors and investment committee agrees
to ITP route. Considering 2,000 portfolio companies PE/VC funds in past 5 years, most SGBs may look
for ITP listing which may be helpful for promoters and investors. We have seen our regulator,
Securities and Exchange Board of India (SEBI), has been very proactive and innovative for products as
well as regulations. We hope to attract USD1-2bn
USD1 2bn to SGBs from foreign institutional investors
over the next 3-4years
4years through ITP as main boards are also equally illiquid.
Ultimately success of ITP will depend on the participation from the PE industry by listing their
portfolio companies on ITP, BSE. There is also need for good SGB investments
investments banks that can advise
and provide research on such companies that are going for listing on ITP at BSE.
We, Varhad Capital Private Limited, have Investment Adviser licence from SEBI to advise companies
for ITP listing at BSE. We also cover 95 small
small and SGB companies listed on BSE main board and SME
board through a sister firm Varhad FCS Pvt Ltd.
The above article has been written by Mr. Prasad Dahapute. He founded the Varhad Group and MD
of Varhad Capital. He was Head of Research at PUG Securities and Co-head
Co head of Equity Research at
Standard Chartered. He has worked with HSBC as utility analyst for India, China and Korea and
Antique stock broking as Senior Vice President Research. He was rated
rated among top 30 equity analysts
in India by Asiamoney for 3 years in a row for 2007-09.
He is an MBA from Symbiosis Institute of
Business Management (SIBM), Pune and a Bachelor of Engineering from Government College of
Engineering, Jalgaon.
© 2013 by The Varhad Group. All rights reserved. No part of this document may be reproduced or
transmitted in any form or by any
any means without prior written permission of The Varhad Group.
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